Regional reinsurer, Zep-Re, is calling for more collaboration to enhance the technical and financial capacity of local insurers to ensure their capability is exhausted before risks can be passed to foreign entities.
Zep-Re company secretary and head of legal and regulatory affairs Miriam Magala said collaborations will help local insurers and reinsurers in markets such as Kenya, Uganda and Tanzania to build capacity to take on even larger risks in sectors such as oil and gas.
Premiums of insurers and reinsurers in the Common Market for Eastern and Southern Africa are not growing as fast as they should despite the increasing insurable risks in line with the growing economies, with the trend being linked on premiums flight and near stagnant growth in insurance penetration.
Ms Magala said collaborations and strict implementation of regulations can help stem the continued capital flight that is happening at the expense of local underwriters.
“This is important because it is one of the sure ways to grow the local insurance and reinsurance market. If the business keeps coming in and going out, then you don’t have premium or capital retention, and this is disadvantageous to local companies,” said Ms Magala.
Localization or domestication of insurance business will ensure that local entities write business to the capacity that they can before passing excess capacity to companies that are not locally incorporated.
Insurers are being urged to ensure that they circulate the risk at hand to all its counterparts in a given country to establish what they can or cannot underwrite.
Ms Magala is also proposing the formation of consortiums to maximise on knowledge and increased capital to underwrite large businesses sustainably instead of operating in silos and losing it all together.
The use of consortiums— where insurers come together to write a given risk and determine what gets placed outside— is for instance working in Uganda where insurers are underwriting agriculture as a group.
The Ugandan government in 2016 established the Uganda Agriculture Insurance Scheme with more than 10 insurance companies coming together to form a consortium for agricultural insurance.
The Uganda’s consortium has been able to consolidate technical and financial capacity in delivering suitable products that are cost-effective and with a standardised premium rate and similar terms and conditions.
“As they pull together, more capacity gets written locally. Also, they get to learn more about the business and become more familiar with the kind of risks that affect this particular class,” said Ms Magala.
The Ugandan scheme now protects about 300,000 smallholder farmers against drought, pest and poor-quality seed, all which were previously seen as uninsurable. In 2017, it was covering just about 25,000 farmers.
Ms Miriam said collaboration will play a crucial part in ensuring insurers on the continent do not miss out on big projects such as road and rail infrastructure as well as the oil and gas projects.
She added that local insurers have a chance to seize such businesses, given that regulations in nearly all the key markets are in support of domestication of business.
“If you look at the insurance legislation for each of these markets, they actually provide for localisation to the maximum extent possible. And any risk that is to be placed outside has to be approved by the regulator,” said Ms Miriam.
But governments and insurance regulators will have to put their foot down in helping local underwriters to localise insurance and reinsurance business.
Markets such as Kenya have been pushing to have a larger share of marine insurance but no much growth has been realised, despite Mombasa Port being one of the busiest in the region.
Another complication comes when financiers of infrastructural projects such as roads and railways are foreigners who come with their own conditions such as setting a high bar on who can insure such projects, or simply coming in when they have already picked the underwriter.
“It is also a question of enforcing our regulations. It is about making it clear that you can do business here but local regulations must be respected. Enforcement is key. Insurance and reinsurance companies must be willing to work together and where we see that the laws are not being observed, we make necessary reports to the regulator,” said Ms Magala.
Some project financiers insist on working with underwriters with A rating, locking out many insurers who can achieve synergy when they pool resources together.
The rating is usually based on metrics such as the ratings of the country in which an insurer is operating, growth prospects, capital and governance.
Ms Magala believes regulations in support of localisation are already sufficient but require some tightening when it comes to the process to be followed before giving business to firms not locally incorporated.
Kenya, for instance, had built a platform where an insurer would post excess risk for all their counterparts to pick, before giving it to foreign firms, but this ran into headwinds.
Zep-Re has been involved in building the capacity of local underwriters to support localisation. For instance, the reinsurer supported the establishment of a national reinsurer in Uganda and Tanzania.
The reinsurer also runs the Zep-Re Academy where it supports countries in building the capacity to take on different risks. Ms Magala believes this will help realise domestication of risks.
“We are doing a lot in building capacity. We have the Zep-Re Academy where we work with several regional markets to build technical capacity. Last year alone, we did close to 3,000 trainings,” said Ms Magala.
Zep-Re is also supporting the DRC Congo on agricultural insurance and Zambia on micro-insurance, in addition to building the capacity for the World Bank-backed De-Risking, Inclusion and Value Enhancement of Pastoral Economies (DRIVE) project.
The DRIVE project seeks to strengthen support for pastoralists through access to rapid cash when there is drought, either through their savings or insurance payouts, allowing them to keep their core breeding stock alive.
The project will also incentivise pastoralists to save more in cash as opposed to increasing the size of their herd at a time the frequency and severity of drought has increased. It will also facilitate livestock trade in the Horn of Africa.
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